A December 2014 Federal Reserve Bank of San Francisco study showed that, due to the effect of the Great Baby Boomer Retirement, prices in the broader market should fall 50% by the year 2027.
The report likens this to a ‘2nd Great Depression’.
The Shocking ‘M/O’ Ratio Will Doom Your Retirement
It all comes down to the little-known M/O Ratio. This is not just a stock market trend; it’s a massive demographic trend.
The M/O ratio basically tracks middle aged investors (M, or investors in their 40’s and 50’s) and older investors (O, or investors in their 60’s and 70’s). As our country’s age shifts from people being in their 40’s and 50’s to their 60’s and 70’s, the M/O ratio goes down.
This makes sense as the Baby Boomer wave gets older. What is shocking though is the relationship between our aging population and stock prices.
The Fed’s research shows that the M/O ratio and the market P/E ratio (which tracks the market’s price to earnings ratio) move in lock step. When P/E goes down, market prices go down. Look at the chart below:
What do you notice here? Take a look at when market P/E is highest (when the prices were highest in stock markets). This was in the high-flying markets of the 1990s. That is also when the M/O ratio was the highest, or when the Baby Boomers were in their 40’s and 50’s. Basically investors have prime stock BUYING years (their 40’s and 50’s) and prime stock SELLING years (their 60’s and 70’s). This makes sense too. As you enter your prime wage earning years you buy more stock and as you enter retirement age you sell more stock. Now think about this: what happens when almost 80 million other investors all start selling their stocks to fund their retirement? Report: Stocks to Fall 50% by 2027 Now take a look at the projections below:
If the market P/E ratio continues to track the demographic M/O ratio, market prices will be slashed in half by 2027. And it’s because the vast majority of investors, which are Baby Boomers, will be entering their price stock SELLING years. This quote, take directly from the Federal Reserve report, should give you chills: “Our current estimate suggests that the P/E ratio of the U.S. equity market could be halved by 2025 relative to its 2013 level.” Can you afford to lose 50% of your money over the next 12 years?If this report is off by even half, can you afford to lose 25% of your portfolio over the next 10 years? Predicting stocks prices is a tough and risky business. But predicting demographic trends like aging comes with mathematical certainty. And this trend is going to put downward pressure on the markets. We can be sure of it. I bet your financial planner or your stock broker hasn’t brought this up to you. Or if they have, they’ll explain that younger generations investing in the markets will make up for these losses. I guess they must be talking about the younger generations that are seeing 20% unemployment rates? Or are buried under mountains of student-loan debt? Or the younger generations that are saving money at rates that are breaking all-time lows? Those younger generations are going to keep the markets afloat? Really? What about foreign investors? Won’t they keep markets afloat? That same Fed Report lists the demographic trends of other industrialized nations like Japan and Europe. And their demographics are actually WORSE than ours as far the population aging. So what is a savvy investor to do? How can you possible fight against such a massive market and demographic shift? There is a way, and it’s going to revolutionize investing. Ironically, it’s going to do that by taking investing back to it’s roots. The 21st Century Investing Revolution Is Here That opportunity is finally here. Thanks to legislation that passed in 2012 called the JOBS act and technology advancements, investors have unprecedented access to investing “outside of Wall Street.” This is nothing less than the democratization of investing. It’s putting the power back into the hands of the people, people just like you, so that you can decide WHO and WHAT you are investing in. Before this act, the investments we are about to show you were only available to big businesses and incredibly wealthy investors. Now anyone at any income level can invest in them. And the returns are better than anything Wall Street can offer, and the risk is WAY lower than you think. (How risky is it to hand your money over to fee-driven brokers and manager anyways? Don’t you want to be in control?) On top of this, you can attain consistent returns. Imagine having your moneymaking 15-25% consistently, without any bogus fees.